Preparing for a Smooth Launch of ETS2
EU countries have agreed to strengthen a financial tool designed to prevent sudden spikes in carbon prices as the bloc prepares to introduce a new carbon tax on cars, vans, and buildings. The updated system, part of the European Union’s emissions trading scheme (ETS2), will take effect in 2028 and is expected to raise costs for households and businesses that rely on fossil fuels for heating and transport.
To keep prices stable, member states will extend the mechanism beyond 2030. While Slovakia and the Czech Republic have called for a delay due to social concerns, Sweden, Denmark, Finland, the Netherlands, and Luxembourg have opposed postponements, arguing that delays could undermine EU climate goals and create uncertainty for investors and households.
How the Market Stability Reserve Works
At the heart of the plan is the Market Stability Reserve, the EU’s long-term tool for balancing supply and demand in the carbon market. Designed to act as a “safety valve,” it can release allowances to prevent price spikes.
Currently, 20 million allowances are released when carbon prices exceed €45 per tonne of CO₂. Under the new rules, releases will increase by 20 million allowances and occur twice a year, allowing up to 80 million allowances to enter the market if prices rise too quickly. The reserve currently holds 600 million allowances, roughly enough to cover ten years of emission-reduction needs, providing a substantial buffer against shocks.
Balancing Climate Goals with Social Impact
The ETS2 extension, created in 2023, aims to reduce emissions in transport and buildings by 42% by 2030 compared with 2005 levels. The mechanism was originally due to start in 2027 but was delayed amid concerns over affordability for households.
Officials emphasize that the revised reserve signals a commitment to a predictable carbon market, while also protecting citizens from excessive price swings. The European Investment Bank recently added €3 billion to help households cope with rising energy bills, responding to pressure from lawmakers to support vulnerable groups.
The European Parliament will now review the Council’s position and must approve the final rules before ETS2 begins in 2028, ensuring both environmental goals and economic stability are maintained.
